Designer Hotels Hit the Hot Spots

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Fashion houses also are betting heavily on Italy. A number of brands have opened or are planning flagship hotels in Milan, including Bulgari, Moschino, and Armani. Located close to company headquarters and shopping destinations, these hotels will likely become even more popular after the opening of Milan's planned Città della Moda (Fashion City) in 2010.

Keeping the Edge

Once established in retail-obsessed cities, the next step will be to diversify geographically to build global brand awareness—especially in fast-developing Asian markets. In a market that is increasingly pro-niche and anti-chain, says futurist Kasriel, the key is to develop a small and exclusive series of hotels around the world.

Bulgari is an early example. With a plan to create "unique hotels in unique locations," it started in 2004 with a property in Milan, located in the fashionable district of Brera. More recently, Bulgari opened an exclusive villa hotel and spa overlooking the Indian Ocean on the shores of Bali. The resort combines contemporary Italian design with traditional Balinese style.

Of course, in a world of Habitats and Pottery Barns, where consumers can easily create a designer feel in their homes without breaking the bank, demanding clients will be looking for something even more special. A risk for fashion-based hotels is their need to constantly renew—and reinvest—to keep their look cutting-edge.

Add It to My Bill

Fashion houses are familiar with the business model. After all, for many of them, haute couture is the loss-leader, with most of the real money being made from prêt-à-porter, perfume, and accessories. Hotels will follow a similar model: The profits come from the "lower" areas—bars, restaurants, sports lounges, and spas. Add to that merchandising of products for sale in the lobby or guest rooms, and fashion houses can afford to splurge on spectacular lobbies and up-to-date furnishings.

That's what Versace is doing: The Palazzo Versace in Australia is entirely fitted out with the company's interior collection: furniture, lamps, frames, dining essentials, linens, and furnishings. Naturally, everything is for sale. While boutique hotels may not be for everyone, they certainly succeed at one innovation: the designer night's sleep.

For a look at some of the existing and planned designer hotels, click here for a slide show.

Haq writes for BusinessWeek.com from Paris .